KAOHSIUNG, Taiwan, Oct 2 (Reuters) - Taiwan shut down on Wednesday with offices, schools and financial markets closed ahead of the arrival of a weakening Typhoon Krathon, which is forecast to bring storm surges along the coast and torrential rain.

The government in the key port city of Kaohsiung, right on the path of the eye of the storm, has told people to stay at home and away from the sea, rivers and mountains, warning of a repeat of 1977's Typhoon Thelma which killed 37 people and devastated the city of 2.7 million.

Taiwan regularly gets hit by typhoons but they generally land along the mountainous and sparsely populated east coast facing the Pacific, but Krathon will make landfall on the island's flat western plain.

It is forecast to hit between Kaohsiung and its neighbouring city of Tainan in the early hours of Thursday, then work its way up the west coast towards the capital Taipei, the Central Weather Administration (CWA) said.

All cities and counties in Taiwan declared a day off on Wednesday, shutting financial markets. Domestic flights have been cancelled for the day, along with dozens of international ones.

The typhoon has weakened but the threat from a storm surge and strong winds and rain remains as it slowly makes its way towards Taiwan's coast, the weather administration said.

"Because of Typhoon Gaemi being quite severe earlier this year, everyone is more cautious and prepared this time around," said sales representative Yu Ren-yu, 35, picking up sandbags at a government office, referring to July's storm that killed 11.

"First be prepared, then we can face this typhoon."

Chou Yi-tang, a government official working in the Siaogang district where the airport is located, said the typhoon has brought back bad memories of Thelma for the older generation, prompting residents to take extra precautions.

In his district, more than 700 sandbags have been distributed, which is a record for a typhoon, while authorities are making more to meet demand, Chou said.

"We were hit directly by the eyewall," he added, of the events almost five decades ago. "Power was out for two weeks and no water for almost a month. It was disastrous."

Taiwan's defence ministry said it had put more than 38,000 troops on standby.

The fire department reported 35 injuries, mostly in the mountainous eastern county of Taitung.

Photo from Reuters